Are 2 Million "Takers" Cheating Obamacare?

According to an audit of Obamacare data, more than 2 million people have entered information in their health-care insurance applications that doesn't match up with Federal records. The revelation that some individuals' data conflicts with Federal records may have investors wondering whether it will mean fewer members enrolled in insurers offering plans on Federal and state exchanges, including WellPoint (NYSE: ANTM) and Aetna (NYSE: AET) . So let's take a closer look.

A lot of missing zeroesThe Department of Health and Human Services released a presentation to the Associated Press showing that roughly 1.2 million people have income discrepancies on their application. Another 965,000 people have inconsistencies associated with either immigration or citizenship records.

Despite those scary numbers, HHS believes that most of the errors are small and will be quickly resolved. The agency also believes many of those errors are tied to out-of-date Federal data. Part of the reason for that may be because insurance applicants are asked to provide data on their expected income this year, not last year. As a result, job losses, children moving off of parent's tax forms, and career changes could all account for some number of those income discrepancies.

Because the Affordable Care Act provides subsidies up front for health-care plans based on income, applicants reporting lower income get the biggest benefit. But the benefit is short-lived. Once taxes are filed for 2014, the government would end up taking back those subsidies in any cases where a person's income significantly exceeded what was initially estimated on the person's application.

Little impact on insurersThe discrepancies should have little impact on insurers like WellPoint and Aetna. Each of those companies participates in either the Federal health-care or state health-care exchanges. As a result, those companies have seen membership, and revenue, grow in the wake of more than 5 million Obamacare sign-ups.

At WellPoint, the company reported it had signed up 400,000 new enrollees through February through the exchanges. Overall, WellPoint expects that 600,000 new members will sign up for coverage through it during the open enrollment period, which ended in March.

WellPoint is having even bigger success in its Medicaid business, which benefits from ACA's expansion to include those making up to 133% of the Federal poverty levels. Twenty-six states have adopted the Medicaid expansion, and WellPoint's Medicaid enrollment jumped by 120,000 people in the first quarter, helping lift sales in its Government business segment by 5% from last year.

Aetna saw its insurance membership climb by more than a half-million people between the end of the fourth and end of the first quarters. And enrollment in its Medicaid programs also surged. Aetna bought Coventry Health to build up its presence in private Medicaid ahead of expansion and, coupled with Medicaid expansion, Aetna's Medicaid enrollment jumped by 800,000 year over year.

Because Medicaid enrollment isn't affected by the discrepancies -- Medicaid recipients have to pass muster differently than those signing up for exchange plans -- the impact on each individual insurer from those 2 million inconsistencies is likely to be small, and possibly best described as a rounding error in relation to the overall increase in membership.

Fool-worthy final thoughtsThe revelation that Obamacare applications are flooded with discrepancies shouldn't be too surprising. After all, it's been a rocky road for the exchanges since they went live last fall. And even if individuals willingly adjusted their incomes to get bigger subsidies, it still shouldn't pose a big threat to total enrollment or revenue at insurers like WellPoint or Aetna, because its unlikely those individuals would lose coverage. Instead, folks like that would just end up having to pay back their subsidy to the government when they file taxes. The immigration issue is a bit more of an unknown given that while most of the discrepancies are likely easily explained, there could be instances where coverage is ultimately denied.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital Markets, LLC may or may not have a position in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends WellPoint. The Motley Fool owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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"The Department of Health and Human Services released a presentation to the Associated Press showing that roughly 1.2 million people have income discrepancies on their application. Another 965,000 people have inconsistencies associated with either immigration or citizenship records."

Well, I wouldn't be "shocked" if it turns out the illegals have been milking gleefully AGAIN from yet ANOTHER government sponsored program...it would only just another notch on their "belt" of stealing/cheating from tax paying and law abiding citizens...let's see...the illegals have been making their "living" from the welfare program(with stolen SS#, of course), the child tax credit(only about 4-7 billion a year, no big deal..), getting their expensive but "free"(only for the illegals, special, ehh?) ER care, free education and school lunch for their kids, getting jobs using falsified documents.... so what's another few billions for these "takers"?? Our government doesn't seem to be bothered....

When there's a comment that is "DIS-APPROVAL WISE" toward Obamacare or this President's number's or any "MORE" of "HIS" changes TO THIS DEMICRATIC LAW" The American People has "EXTREMELY LITTLE FAITH, or TRUTH in anything by Obama or "HIS" Administration. Same is TRUE for the Elected or Appointed Democrats that the Democratic Party has FORCED ON THE AMERICAN PUBLIUC" !

Obama clearly is ignorant of the real world. He is a drug using gang member from Chicago. Community organizer is a euphemism for gang member who couldn't find a real job. The Univ of Chicago hired him because he was a token Black. Obama is violating the constitution and clearly couldn't teach it correctly. I guess that is why Chicago Blacks are so far behind the rest of the United States in Education. Black teachers are like Obama - corrupt, incompetent covered by lies.

The insurance companies paid big money for this. Executives donated and bundled millions for Obama's campaign for the privilege of writing the health care act the way they wanted and the way no one else can understand it. They now deserve to absorb the losses for fraudulent enrolled.

yeah that it...the federal data is apparently inaccurate...it's not all those illegals that signed up for obamacare...it's not all those that put down the wrong income just to get a higher subsidize...it's not all those fake applications to boost the obamacare numbers...

First I never believe Federal Government statistics. I believe Obama said about 1-2 months ago that immigration status would not be questioned when applying for ACA benefits. I heard this on NPR. Second, I know of a couple who have a well-to-do relative living with them who is paying bthe wife under the table for caring for him. At first their ACA application was not to their liking. They talked with a navigator who told them not to disclose the relative or the income. They qualified with a subsidy. Yeah, I don't think there's fraud, I know it, and it's being facilitated by this administration to make the ACA seem like it's working.